Market Quick Take - November 18, 2020

Macro 6 minutes to read

John Hardy

Head of FX Strategy, Saxo Bank Group

Summary:  The market mood has turned a bit more cautious yesterday and overnight, with equity markets generally losing steam after a recent run higher, although US small cap stocks remain an outlier on the strong side. US Retail Sales in October showed the weakest growth in six months, suggest a more cautious attitude and that the stimulus effects from the spring are fading.


What is our trading focus?

  • Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) - both the Nasdaq 100 and the broader S&P 500 index closed a bit weaker yesterday, even as small cap stocks managed another strong session. The key for bulls is for the S&P 500 Index to stay north of the 3,575-3,550 area after this recent run higher to new all-time highs. For the Nasdaq-100, there is a clear struggle at this 12,000 area and the 11,500 zone lower is one that needs to serve as support to maintain an upside focus tactically.

  • Bitcoin EUR (BITCOIN_XBTE:xome) - Bitcoin (XBTUSD) rallied to nearly $18,500 in the Asian session overnight after a rally of nearly 1,000 dollars yesterday, but then suffered a more than 1,000 dollar correction suddenly this morning, highlighting the volatility of this remarkable crypto asset. The major technical break recently was of the 13,000 area. The all-time high from late 2017 is just under 20,000.

  • Nikkei 225 (JP225.I) - the remarkable run of strong sessions in the Nikkei finally ended overnight, as the index had corrected around 1.5% as of this writing, perhaps in part due to a stronger Japanese yen. The major technical level that was broken on the way up was the 2018 high near 2,4450, so there is considerable further room for the index to consolidate without a threatening the bullish implications of the recent surge.

  • USDJPY– is getting interesting again as risk sentiment has cooled this week and as US long yields retreat from the major breakout areas that threatened recently. The 104.00 level that was of technical significance on the USDJPY decline that fell briefly after the US election is back in play, although the tendency is for JPY to move the most against riskier currencies (AUD, NZD and EM currencies) when it is more volatile (normally when yields are falling and risk sentiment is struggling).

  • Brent crude oil (OILUKJAN21) and WTI crude oil (OILUSDEC20) both trade lower after API reported a 4.2m barrels jump in U.S. stockpiles while the XLE:arcx ETF which tracks the performance of large-cap U.S. energy stocks extended its recent rally to reach a three-month high. It highlights a spot market battling with Covid-19 related demand concerns and rising production, and the stock market looking beyond this towards a vaccine driven recovery next year. The inventory rise beat expectations of 1.2m expected with the EIA reporting later today at 15:30 GMT. Brent remains rangebound after finding resistance around $45/b.

  • Walgreens Boots Alliance (WBA:xnas) fell almost 10% yesterday and CVS Health Corp. (CVS:xnys) fell 8.6% after Amazon announced its plans to sell prescription drugs to its Prime members. All told, Bloomberg calculated that top drugstores, drug distributors and health insurers lost some $22 billion in market capitalization on the announcement, a testament to the threat from the online giant to their market share.

  • Pfizer (PFE:xnys) - the drug company’s Covid-19 vaccine candidate reached an important safety milestone that allows the company to apply for emergency authorization from the FDA in the US, which would allow it to administer the vaccine by the millions. Pfizer CEO Bourla admitted that the company does not yet know the durability of the protection provided by the vaccine.

What is going on?

  • US Retail Sales disappointed in October after a multi-month surge - US consumers, despite having saved large portions of the prior stimulus from the spring, were in less of a spending mood in October, with sales less the volatile auto and gas category rising only +0.2% month-on-month versus +0.6% expected, and the September number was revised down –0.4% to +1.2%.

  • Soft commodities trading sharply higher so far this week with cocoa and Arabica coffee both up by more than 6%. Coffee on a combination of worries over dryness for the Brazilian crop which will be harvested in 2021, damage to Central American plantations from Hurricane Iota and the stronger Brazilian real. Cocoa’s recovery to near a two-month high came after regulators in Ghana and Ivory Coast planned to suspend exporters’ sustainability programs in a move that could see them get more control over the pricing of the beans.

  • Soybeans (SOYBEANSJAN21) has reached a four-year high in Chicago with U.S. sourced beans now the cheapest as dry weather continues to threaten production in South America, most noticeable Brazil, the world’s biggest producer.  Chinese demand look set to remain strong due to rising feedstock demand and as the Chinese currency continues to strengthen. At $11.72/bushel, the front month January contract is getting close to $12.08/bushel, the June 2016 high.

What we are watching next?

  • Uncertainty on Fed nominee Judy Shelton continues - with two Republican senators out sick, a vote on the controversial Fed nominee failed, but a move by Republican majority leader Mitch McConnell could allow another vote soon once his colleagues return for a vote. Shelton has spoken harshly against Fed policy and has advocated using the Fed’s policy to devalue the dollar.

Q3 earnings season continues this week. The list below shows the largest companies reporting this week:

  • Today: AP Moller – Maersk, SSE, NVIDIA, Copart, ZTO Express Cayman, Keysight Technologies, Lowe’s Cos, Target, TJX Cos
  • Thursday: Tokio Marine Holdings, NetEase, Ross Stores, Intuit, Workday, Knorr-Bremse

Economic Calendar Highlights for today (times GMT)

  • 1030 – UK Bank of England’s Haldane to Speak
  • 1315 – Canada Bank of Canada’s Wilkins to Speak
  • 1330 – Canada Teranet/National Bank Home Price Index
  • 1330 – US Oct. Housing Starts and Building Permits
  • 1330 – Canada Oct. CPI
  • 1530 – US Weekly DoE Crude Oil and Product Inventories
  • 1630 – UK Bank of England Governor Bailey to Speak
  • 1715 – US Fed’s Williams (Voter) to Speak
  • 0030 – Australia Oct. Unemployment Rate / Employment Change

Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app:

Apple Sportify Soundcloud Stitcher

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo Markets is a registered Trading Name of Saxo Capital Markets Ltd (‘SCML’). SCML is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo Markets assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.